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California Department of Housing and Community Development
Its Oversight of Housing Bond Funds Remains Inconsistent

Report Number: 2018-037



The State's housing goal is to provide a decent home and suitable living environment for every California household. California voters passed the Housing and Emergency Shelter Trust Fund Acts of 2002 and 2006 (Propositions 46 and 1C, respectively) to provide nearly $5 billion in bonds (housing bonds) for use in financing affordable housing. The two propositions allocated funds to 29 different housing programs that the California Department of Housing and Community Development (HCD), the California Housing Finance Agency, and the California Pollution Control Financing Authority administer. These three housing bond administrators have awarded the majority of Propositions 46 and 1C funds to rehabilitate older buildings, construct new affordable housing units, and assist single families with the costs associated with homeownership, including down payment assistance and home rehabilitation. Currently, California continues to face an affordable housing shortage, as Figure 1 shows.

Figure 1
California Continues to Face Insufficient Affordable Housing

An infographic describing California's deficit of affordable housing and its homeless and unsheltered populations relative to the national homeless and unsheltered populations.

Source: Statistics from the National Low Income Housing Coalition, the U.S. Census Bureau, and the U.S. Department of Housing and Urban Development.

* Unsheltered: Homeless people whose primary nighttime location is a public or private place not ordinarily used as a regular sleeping accommodation (for example, the streets, vehicles, abandoned buildings, parks, or camping grounds).

HCD's Oversight of Housing Bond Programs

HCD's mission is to provide leadership, policies, and programs to preserve and expand safe and affordable housing opportunities and to promote strong communities for all Californians. As part of its mission, HCD administers 21 of the 29 housing bond programs. These programs award housing bond funds to recipients such as cities, nonprofit housing agencies, for‑profit developers, housing development groups, and agricultural employees, with the type of recipient dependent upon the nature of the specific program. The housing bond programs are designed to help target populations afford housing in California. As Figure 2 describes, these populations include very low‑income to moderate‑income households, homeless, homeless youth, and agricultural workers.

HCD generally administers two types of programs: loan‑based programs in which recipients pay back the funds, and grant‑based programs, in which they do not. In loan‑based programs, HCD receives principal and interest payments and fees for project monitoring, while it generally does not receive these payments for grant‑based programs. Two of the programs HCD administers are CalHome and Building Equity and Growth in Neighborhoods (BEGIN)—grant‑based programs that are earmarked to receive $505 million and $106 million, respectively, of the housing bond funds. These programs generally allow low‑income and very low‑income households to become first‑time homebuyers or remain homeowners.

HCD's Monitoring of Program Allocations

HCD's role does not end once it provides awards. HCD is responsible for monitoring the award recipients' compliance with state law, regulations, and program requirements. It does so by ensuring that recipients continue to provide safe and affordable housing and that the homes its awards finance remain well maintained. HCD's monitoring of these housing bond programs is important given that they account for $4.39 billion of the bond funds, as Figure 3 shows.

HCD put the Consolidated Automated Program Enterprise System (CAPES) into service in 2007 to serve as its department‑wide data collection and organization system to track awards and monitor housing loans and grants. However, as we discuss later in this report, not all HCD divisions use it to manage their work because the system does not yet have full functionality.

Figure 2
HCD's Housing Bond Programs We Reviewed Are Intended to Help Target Populations Afford Housing

An infographic describing HCD's housing bond programs we reviewed, their portion of bond funding, program descriptions, and the intended target populations.

Source: Analysis of state law and regulations, HCD program guidelines, and funding levels for Propositions 46 and 1C as of December 31, 2017.

Administrative Spending

By statute, HCD can use up to 5 percent of the funds it appropriates to certain programs for administrative costs. These programs include CalHome and BEGIN. When these two programs award funds, HCD has 20‑year monitoring agreements with the recipients. These grant‑based programs do not receive fees from the recipients to help pay for administrative costs; rather, state law authorizes HCD to use up to 5 percent of the program‑specific housing bond funds for this purpose. These administrative costs include HCD's costs related to its program‑related operational activities, including making awards and monitoring recipients to ensure that their use of awards complies with state law, regulation, and program guidelines.

Figure 3
HCD Awarded Almost All of Propositions 46 and 1C Housing Bond Funds to Create New Housing Units and Assist Individuals in Homeownership

An infographic showing that HCD awarded almost all of Propositions 46 and 1C housing bond funds to create new housing units and assist individuals in homeownership.

Source: Analysis of state law and HCD's consolidated bond reports for Propositions 46 and 1C as of December 31, 2017.

* Default reserves: Amounts for unexpected costs incurred to protect the State's financial interest. HCD could eventually disburse those amounts.

Statewide costs: Expenses, including costs to issue the bonds, incurred by the State Treasurer's Office, the State Controller's Office, and the Department of Finance (Finance).

The definition of housing unit varies by program. For example, a housing unit can be a single‑family home, a multibed apartment, one habitable room, or an incentive to build a housing unit.

Potential New Housing Bond Funding
for HCD Programs

Multifamily Housing Program $1.5 Billion
CalHome Program $300 Million
Infill Incentive Grant Program $300 Million
Joe Serna, Jr., Farmworker Housing Grant Program $300 Million
Affordable Housing Innovation Program $300 Million
Transit-Oriented Development Implementation Program $150 Million

Source: Senate Bill 3 (Chapter 365, Statutes of 2017), Veterans and Affordable Housing Bond Act of 2018.

Potential Future Housing Bonds

As the text box shows, California voters will decide in November 2018 whether to approve an additional $3 billion in housing bonds, including $2.85 billion for the housing programs that HCD currently oversees. The ballot measure would provide more money to many of the same programs that Propositions 46 and 1C funded. According to the senate bill that created this ballot measure, investment in existing and successful housing programs to expand the State's housing stock should benefit California's homeless population and low‑income earners, as well as some of the State's most vulnerable populations, such as foster and at‑risk youth, persons with developmental and physical disabilities, farmworkers, the elderly, single parents with children, and survivors of domestic violence.

Recommendations From Our Previous Audits

As Table 1 below illustrates, our office performed four previous audits of HCD's administration of housing bond programs. We found that HCD failed to adequately monitor some of its housing bond programs, to fully implement its housing bond database, and to ensure that it did not exceed administrative spending limits. We made a total of 28 recommendations to HCD to address the problems we identified in those audits.

Table 1
HCD Has Long-standing Problems in Some Areas We Reviewed

Requirements Assessed for Selected Programs Audit Report
2007-037, Released
September 2007
Audit Report
2009-037, Released
November 2009
Audit Report
2012-037, Released
October 2012
Audit Report
2014-037, Released
September 2014
HCD generally awarded bond proceeds in a timely fashion Yes Yes Yes Yes
HCD generally awarded bond proceeds in a manner consistent with requirements Yes Yes Yes Somewhat
HCD generally ensured that awardees are using funds to benefit target populations (monitoring) Somewhat Somewhat Somewhat Somewhat
CAPES can adequately perform key functions necessary for HCD to administer bond awards No* No No No
HCD estimates it will stay within administrative spending restrictions Yes Yes No No

Source: California State Auditor reports 2007-037, 2009-037, 2012-037, and 2014-037.

* The California State Auditor issued a letter in 2007 to the Business, Transportation and Housing Agency (in 2013 it became the California State Transportation Agency) identifying issues with CAPES.

 HCD generally met the requirements we reviewed.

 HCD did not meet some of the requirements we reviewed.

 HCD did not meet the requirements we reviewed.

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